EUR/USD in tight range

The EUR/USD remains capped by the 1.3700 metric today, on news that banks may be reducing holdings in sovereign debt ahead of the European Central Bank assessment next year, particularly in the likes of Spain and Italy.

This has had the effect of driving 10-year yields on Spanish bonds to a two-week high. German import prices have also increased, by 0.1% last month compared to a 0.7% drop in October. For now, the EUR/USD pair continues to trade in a tight range with 1.3620 still acting as a support. 

The uncertainty and lack of confidence in holding peripheral debt by even domestic banks tends to put a degree of bias to euro downside. Conversely, the euro has succeeded in being surprisingly resilient this year, being the best performing currency in the G10, so we cannot rule out a rally through the 1.37 level.

US macro data may well furnish us with more direction and, given that better economic data from the US is fast becoming the norm, any releases better than consensus – particularly in such a thin trading environment – could be the catalyst for a move back through 1.3620. This could send the single currency back to trading near the 1.3530/40 level.

US personal income is likely to have increased 0.5% in November, alongside a 0.4% increase in personal spending.

The revised University of Michigan consumer sentiment number may well come in higher also, in light of the vote of confidence in the economy recently given by Ben Bernanke through his scaling back of quantitative easing.

Spot FX EUR/USD chart

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